Collective Dilemmas–Who Solves Them?

To what extent do legislators represent their constituents? Or, In what ways do legislators act in extreme ways that their constituents would want?

This blog begins with Hardin’s (1968) The Tragedy of the Commons, then explores Coase’s (1960) The Problem of Social Cost, and rounds off the inquest of scholarly writings with Cox and McCubbins (1993). I use these authors to extrapolate the idea of collective dilemmas and then to “tiger pounce” our discussion questions.

Hardin attributes the “Tragedy of the Commons” to William Foster Lloyd, 1833. “Tragedy” was meant to be used as the Greeks used it—“the remorseless workings of things.”[1] Like, everyone dies in the end. Accordingly, in this metaphor, imagine a pasture that is available to the public [commons]. Say there are cattle herdsmen on each corner. The “dilemma” is realized once all the herders increase their cattle grazing to the point of optimization. Meaning, if each herdsman has 10 cattle grazing on the commons and the grazing is optimal, then the commons can fully support the herders—but no more. The commons is being efficiently used.

The dilemma, then, is realized when each of the herders desires to increase the amount of cattle in order to make more money from beef sales. Unfortunately, the commons will not be able to support the additional cattle—they will overgraze—the grass will not grow back—all cattle will die—there will be no more beef, the herdsmen will be unemployed, burger joints will close…a tragedy, and this only the first articulation!

Hardin determined that this metaphor showcased a positive and negative component:

The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly + 1.

The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of – 1.[2]

Hardin then explains that the former will lead each herdsman to increase his/her herd without limit, and, realize the tragedy. This happens precisely because s/he will pursue his/her own best interest; hence, “Freedom in a commons brings ruin to all.”[3] As a ridiculous metaphor, surfers require clean shore water. As a response, the surfers sue people (this includes corporations in the USA) who contaminate the water for gnarly damages.

In order to avoid ruin, “mutual coercion” must be formulated by the people—by the state.[4] Appealing to people’s conscience will not work and is contradictory. Hardin explained:

(intended communication) “If you don’t do as we ask, we will openly condemn you for not acting like a responsible citizen”;

(the unintended communication) “If you do behave as we ask, we will secretly condemn you for a simpleton who can be shamed into standing aside while the rest of us exploit the commons.”[5]

Mutual coercion is the answer to technical commons problems. As a light example, parking meters force people to pay for short term parking, and parking tickets force people to pay for longer term parking. The monetary code doesn’t prohibit people from parking; rather, it makes it costly for people to engage in the activity—it regulates the space at an optimal level so that it can be sustained over the long-term. Mutual coercion is necessary (e.g., without the meter, people would park there and never leave and no one during the day would be able to use the space), even if imperfect or unjust (e.g., favors the rich). According to Hardin, “Injustice is preferable to total ruin.”[6]

Coase has an answer to the “Tragedy of the Commons” dilemma: privatize it.

Coase’s Theorem, in general, is: With market exchange, if property rights are enforced, and transaction costs are zero, then we’ll always be able to bargain to obtain an economically efficient outcome.[7]

Think of the Commons metaphor. If the herders each own a slice of the commons, then they would not overgraze their own land—and they could not use other peoples’ land without paying them. The result might very well be higher average burger prices—but alas, we would always have burgers.

Coase also examined how business firms which cause harm to others could be engaged [and solved] though collective action dilemmas. For example, if a railroad car caused a spark and the spark caused a fire to a cornfield—who is responsible? Who pays? How is this solved? If you know that the train car causes sparks, should the government mandate that cornfields be planted 20 meters from the railroad? If so, should the railroad company [or the government] pay for the lost crop? Does the reduction in crop influence the supply/demand of corn and thus the price? Would it be cheaper for the railroad company to simply pay for the few fields it burns down every year, or, more poignantly, should corn growers pay for spark shields—since they use the trains to transport their corn?

Coase has a particular question in mind to use as a point of resolution: “The economic problem in all cases of harmful effects is how to maximize the value of production.”[8] He further suggests: “It is all a question of weighing up the gains that would accrue from eliminating these harmful effects against the gains that accrue from allowing them to continue.”[9]

Coase finds that government intervention may radically alter the outcome of collective action dilemmas.[10] For example, let’s say that the U.S. government guarantees that if a corn field is burnt down due to railroad car sparks, then the farmers will be compensated [because the railroad is a public good and essential for the economy]. Now, farmers are going to line the tracks with corn; because, they get paid full price if the corn burns down and/or will attain market value to sell it. Government interference, in this way, causes a stupid action [planting corn in a place it may catch on fire] into a seemingly logical and rational exercise [make money].

This leads us to a big question: How do institutions [help] solve collective dilemmas for society?

Cox and McCubbins[11] define a collective dilemma as “a situation in which rational behavior on the part of individuals can lead to unanimously dispreferred outcomes” and can be modeled “by games possessing Pareto-inefficient Nash equilibria.”[12] As examples, they use (1) standardization and the (2) prisoner’s dilemma.

Standardization is a collective dilemma because “both players may rationally insist on their own standards, resulting in an outcome (no shared standard) that both consider inferior to some other that both could have attained.”[13]

Say two railroad companies create different track widths. Over time, the companies [and the people] would benefit from the same track width, since this may decrease costs and increase efficiency. But in this game, it may be cost prohibitive for one side to switch—so neither side switches—and the inefficiency continues. Thus, without some type of intervention, [Nash] equilibrium is to not make changes—to continue the inefficient action. This is most definitely a collective dilemma!

Again, the idea to grasp is that within the natural market, we sometimes witness inefficient, more so enormous inefficiency, which should be corrected—even if through mutual coercion!

Cox and McCubbins suggest that “political entrepreneurs” are able to solve collective dilemmas.[14] Political entrepreneurs have three essential functions:

They bear the costs of monitoring the community faced with the collective dilemma.

They possess selective incentives (individually targetable punishments and rewards) with which to reward those whom they find cooperating or punish those whom they find “defecting”

They are paid, in various ways, for the valuable service they provide.[15]

If you think about it in Ols0n’s terms (1965), the political entrepreneur is “transforming latent groups into privileged ones.”[16]

Hence, this political entrepreneur might have quite a lot of power, but with power may come problems. Cox and McCubbins find that if the political entrepreneur is embedded [or paid] by the central authority, then s/he may be too weak or too strong. To weak: the selective incentives won’t deter noncooperative behavior (e.g. shirking). To strong: the selective incentives allow the entrepreneur to collect, collect, collect—to the point that the entrepreneur is more of an emperor over a collective activity than a mindful regulator-problem solver.[17] If too strong: (1) remove; or, (2) shorten the incentives to return power to the players; or, (3) make it collective and put the entrepreneur into commission.[18]

Cox and McCubbins then turn their attention to political parties. Their initial line is that legislators are [first] individuals with individual goals.

So another big question:

How can a group of formerly equal and self-interested legislators, with demonstrably diverse preferences on many issues, agree on the creation or maintenance of a party, on the organizational design of a party, and on the setting of collective goals?[19]

Cox and McCubbins suggest that it is in their interest to get reelected, that the party provides a central record to the voters—providing information to the voters regarding the beliefs, actions, and outcomes accountable of their representative(s).[20] They restate evidence that party members don’t run for reelection when the tide is against them, and that electoral forces are influential in determining vote swings.[21]

But why wouldn’t a representative free-ride—voting against the party whenever it is beneficial to his/her constituents? The answer is revealed in another question: Who is in charge organizing collective benefits in Congress and stopping collective dilemmas from ensuring tragedy?

Cox and McCubbins find that the party leadership is instrumental in this endeavor. The party leadership is the “political entrepreneur” stopping a multitude of collective dilemmas from creating multiple tragedies (or even multiple inefficient Nash equilibria). The party leaders engage selective incentives, such as internal advancement, campaign contributions, etc. However, rebellious party members may have these selective incentives withdrawn, which may be detrimental to reelection. Thus, the party leader takes the role of political entrepreneur—of solving collective dilemmas.

Now up until this point, reading this post has been like surfin’ 2 footers—nice, but not really exhilarating. So let me roll an eight-footer at you. Get in that pipeline:

Hardin explained that there was this tragedy of the commons, whereas herders [business people] have an incentive to increase cattle [making money] to the point of annihilation—because they seemed to get a lot [another cow-sale] for a little bit of cost to everyone else [just a little bit less grass for all the other cows], but in the end there was nothing left.

Coase explains that making the “commons” private property will solve the commons problem; because, no herder is going to go past optimal efficiency and kill off his herd. Creating private property manifests the appropriate incentives.

NOW, legislators in D.C. view the U.S. budget as “the commons.” Individually, congressmen have an incentive to take as much pork as possible for their district. And the people usually want their congressperson to go extreme and bring home copious amounts of pork (so what if my neighbor to the North, South, East, or West has to pay for it–just get it for us!). Since all legislators are engaged in this behavior, the U.S. citizens approach the tragedy of bankruptcy!

Is there a solution? Of Coase, privatize it—make the legislators responsible (pay-go is a starter). Is there a bigger picture? Sure, the party leaders solve the former collective dilemma by transforming latent legislators into a privileged party. Meaning, the party that proves to be a collective good to the people will get reelected! Kick the bums out!

Ahhh, now that we’re are on shore, chilaxin, let’s ends this topic.

Is there a role for people like me—for political scientists? Yes. Reveal the reality of the actual Party Doctrine.

Say Republicans are fiscally responsible—well not under President W. Bush (e.g., remember that Medicare expansion, the constant increase in federal deficit over the years, and President W. chargin’ in for the $700 billion bailout at the end of his term!?).

Really, Republicans are still transforming into an image that the median voter may support (I would venture that Ron Paul’s foreign policy mixed with Mitt Romney’s domestic policy and Newt Gingrich’s campaign promises would be a winner 🙂

[1] Hardin. 1968. The Tragedy of the Commons. Science, 162: 1243-1248. I printed this from the web and I don’t have the “Science” page numbers, so I will use the printout page numbers. Ahh, the benefits of a Blog J